The Paradigm Has Shifted – Employment Rebound Led By Low Quality Jobs

By 1291americas on June 17, 2017 10:43 pm

Alice…where are you?

It seems that Alice in Wonderland may be the only one in a position to understand what’s happening with interest rates, unemployment and the overall U.S. economy in light of the Fed Meeting on Wednesday and recent data.

Much like in Lewis Carroll’s Through the Looking Glass, where the clock runs backwards and memories flow in reverse, things in the U.S. economy may not be quite what they seem. While the equity market seems to have fallen down the rabbit hole, we have been busy looking for the source of this distortion. Perhaps we have found it…

snip

But, with unemployment rates so low that even ex-convicts and high school drop outs are getting job offers, inflation is still under 2%. The Consumer Price Index (CPI), which is the standard used to measure inflation, has remained nearly flat over the past three months. Something has changed.

The Paradigm Has Shifted

The Fed acted to raise rates based on what it believes full employment should means to the overall economy, yet, raising inflation is nowhere to be found. The question we must answer is why. To do that we have to look much deeper than the pandering news headlines that shout about the lowest unemployment rate in 16 years.

snip

“Since the 1970s, steady work that pays a predictable and living wage has become increasingly difficult to find,” said Jonathan Morduch, a director of the U.S. Financial Diaries project, an in-depth study of 235 low- and moderate-income households. “This shift has left many more families vulnerable to income volatility.”

The May jobs report showed that areas with the largest growth were professional and business services, education and health services, and leisure and hospitality. Together these three sectors make up 40% of the job market. While these sectors showed the largest gain in jobs, the average income these new jobs provide are below or deeply below the national median household income of $56,000 per year.

If the Fed looked past the simple math calculations, they would have seen that a majority of new jobs that have been created since the Great Recession of 2008 have not been solid, reliable white collar jobs. Jobs that paid $75,000 a year or more have vanished…to be replaced with more modest job openings paying at or below the $56,000 average. It’s no wonder that inflation has gone missing. There are fewer willing consumers.

With no increase in minimum wage, no job growth in high paying industries and continuing importation of cheaper labor in the tech industries from Asia we are on a long glide path to 3rd world hell hole status. Especially after Congress puts healthcare on a pay or die basis, and destroys the social safety net.

One basic problem of the American industry is the fact, that you find much less export minded companies than in Europe and many countries of Asia. During decades American industries were very good at manufacturing good ordinary product at a competitive price. So for example in the fifties American cars were considered often better than European ones as many other industrial products because of the investment made in the production network and a climate of competition within the USA, and a good organization of mass production. These advantages did slowly erode little by little, even when the USD became much cheaper in the times of Nixon. And even when manpower (blue collar for example)became more expensive in Northern Europe than in the USA, American industries did not rebounce exporting more. For that it would have been necessary to adjust to what foreign customers wanted like most other export minded countries did. So now, the US industries have to compete against former third world countries which pay less workers than in the USA for lwo skilled jobs. The result is obvious and these low skileld jobs will be in teh US replaced by robots if companies are in a position to invest in such tools. So the future is not very pleasant to look at and to whine about jobs disappearing in traditional industries will not change the trend toward more globalization. What is really at stake is competitiveness and performance which is not possible for products with little know how, any actors in the Third World being able to produce them at a cheaper price than in the US. So is isolationism and retreating back in kind of a fortress America possible ?At least doing that there is a risk to be left behind and to loose the status of a superpower. Nature hates vacuum, and what the Americans will give up doing will be filled by others. Furthermore isolationism is a way not addressing the real problem, which created the present situation. And this problem comes from the lack of education facilities for middle skilled workers in the US, which makes difficult to produce more sophisticated products than the ones coming for example from Asia. It is a huge challenge and personally being since 25 years member of the board of an ibdustrial company which is specialized in micro mechanics and the dental field, there never was any possiblity to be really present at the exception of spots on this market, because locally in your country either to distribute our products or to decide to manufacture them, it was impossible to find the skilled manpower we needed... I think that often on thread or posts people here have a hard tiem to understand what are the causes of low wages in the US. They prefer to llok at conséquences than to try to understand globally what created this situation.

One basic problem of the American industry is the fact, that you find much less export minded companies than in Europe and many countries of Asia. During decades American industries were very good at manufacturing good ordinary product at a competitive price. So for example in the fifties American cars were considered often better than European ones as many other industrial products because of the investment made in the production network and a climate of competition within the USA, and a good organization of mass production. These advantages did slowly erode little by little, even when the USD became much cheaper in the times of Nixon. And even when manpower (blue collar for example)became more expensive in Northern Europe than in the USA, American industries did not rebounce exporting more. For that it would have been necessary to adjust to what foreign customers wanted like most other export minded countries did. So now, the US industries have to compete against former third world countries which pay less workers than in the USA for lwo skilled jobs. The result is obvious and these low skileld jobs will be in teh US replaced by robots if companies are in a position to invest in such tools. So the future is not very pleasant to look at and to whine about jobs disappearing in traditional industries will not change the trend toward more globalization. What is really at stake is competitiveness and performance which is not possible for products with little know how, any actors in the Third World being able to produce them at a cheaper price than in the US. So is isolationism and retreating back in kind of a fortress America possible ?At least doing that there is a risk to be left behind and to loose the status of a superpower. Nature hates vacuum, and what the Americans will give up doing will be filled by others. Furthermore isolationism is a way not addressing the real problem, which created the present situation. And this problem comes from the lack of education facilities for middle skilled workers in the US, which makes difficult to produce more sophisticated products than the ones coming for example from Asia. It is a huge challenge and personally being since 25 years member of the board of an ibdustrial company which is specialized in micro mechanics and the dental field, there never was any possiblity to be really present at the exception of spots on this market, because locally in your country either to distribute our products or to decide to manufacture them, it was impossible to find the skilled manpower we needed... I think that often on thread or posts people here have a hard tiem to understand what are the causes of low wages in the US. They prefer to llok at conséquences than to try to understand globally what created this situation.

Good points, I just wanted to expound on your post a bit since I am a former manufacturer. I ultimately spent a fair amount of time focusing on high quality production as opposed to differentiating based on price. Nevertheless, there were many things I could, and still can, make cheaper than China.

China has policies of export subsidies and formerly currency manipulation (China currently props up the yuan). I have been to Reading, Wilkes-Barre and other former industrial cities of eastern PA and the costs are stupendously low.

There are many products where the additional cost of labor in the US is less than the cost of freight from Shenzhen.

I can flat out beat them on cost on many items I might add, from motorcycle wallets to floor mats, for that matter even staplers. And the jobs created would pay $25+

However, I won't throw money at a location in Reading, open shop, start supplying these things and then have the Chinese turn around and simply subsidize my competition and then undercut me and throw me into bankruptcy.

Export subsidies make the price of subsidized items cheaper for American consumers of course but if China can subsidize tires they can subsidize staplers or floor mats, you name it, bottom line, don't be surprised when many Americans look at the potential for export subsidies to exist and decide that's not a game they're willing to play.

Good points, I just wanted to expound on your post a bit since I am a former manufacturer. I ultimately spent a fair amount of time focusing on high quality production as opposed to differentiating based on price. Nevertheless, there were many things I could, and still can, make cheaper than China.

China has policies of export subsidies and formerly currency manipulation (China currently props up the yuan). I have been to Reading, Wilkes-Barre and other former industrial cities of eastern PA and the costs are stupendously low.

There are many products where the additional cost of labor in the US is less than the cost of freight from Shenzhen.

I can flat out beat them on cost on many items I might add, from motorcycle wallets to floor mats, for that matter even staplers. And the jobs created would pay $25+

However, I won't throw money at a location in Reading, open shop, start supplying these things and then have the Chinese turn around and simply subsidize my competition and then undercut me and throw me into bankruptcy.

Export subsidies make the price of subsidized items cheaper for American consumers of course but if China can subsidize tires they can subsidize staplers or floor mats, you name it, bottom line, don't be surprised when many Americans look at the potential for export subsidies to exist and decide that's not a game they're willing to play.

It is interesting to get information from you about Eastern Pennsylvania. I spent one year in Hazleton as an exchange student in 1965/66 (it does not make me very Young !)and at the time the area was economically still a bit depressed having had to manage the transition between coal mining and what was possible to continue to develop in other sectors.

Living in a country which has extremely high costs of production we gave up to compete with Chinese cheap products for long and did specialize our production. For that it was necessary to invest a lot in R&D and according to international studies Switzerland is probably the most innovative country in the world of course proportionally to the number of its inhabitants. We have an important trade surplus with the USA and what is interesting is the fact that from the time I was in Pennsylvania the USD lost 3/4 of its worth against the Swiss franc. (I do not accuse here the USA to manipulate thecurrency rate of the USD here !)So how is it possible to go on exporting with such a situation ? The answer is the know how you are able to put in each product you sell. Of course my reasoning works mainly with sophisticated products and it is why in Switzerland are mainly interested in this type of products. For that you need a very skilled employees and that means a good training system which fills the needs of the industry and to be able to implement projects on a very long run. What surprises me is the fact that the USA which are leaders in many top technical field, did not adjsut their industrial structures for more basic products to the mutations on the go. And one main problem for someone who wants to invest in the USA and manufacture normal product is the difficulty to find skilled people in field like micro mechanics for exemple..... I repeat myself on this point but it is not understandable for me. Of course you what you mention are not very technical products, when I am "promoting" products which are probalby farmore complicated to make.

Good points, I just wanted to expound on your post a bit since I am a former manufacturer. I ultimately spent a fair amount of time focusing on high quality production as opposed to differentiating based on price. Nevertheless, there were many things I could, and still can, make cheaper than China.

China has policies of export subsidies and formerly currency manipulation (China currently props up the yuan). I have been to Reading, Wilkes-Barre and other former industrial cities of eastern PA and the costs are stupendously low.

There are many products where the additional cost of labor in the US is less than the cost of freight from Shenzhen.

I can flat out beat them on cost on many items I might add, from motorcycle wallets to floor mats, for that matter even staplers. And the jobs created would pay $25+

However, I won't throw money at a location in Reading, open shop, start supplying these things and then have the Chinese turn around and simply subsidize my competition and then undercut me and throw me into bankruptcy.

Export subsidies make the price of subsidized items cheaper for American consumers of course but if China can subsidize tires they can subsidize staplers or floor mats, you name it, bottom line, don't be surprised when many Americans look at the potential for export subsidies to exist and decide that's not a game they're willing to play.

Two reasons the change is happening.

A] Chinese Labor costs are rising

B] Shipping costs are not the sole reasoning...time leads are to. Items from China take months ...Brick and motars are not carrying the inventory as before and consumers do not want to wait long lead times for products.

You're right and 100 days into this administration nothing's changed from Obama's economy. Is it possible, just possible, that allowing all those manufacturing jobs outsource to China under the Clinton administration was a bad idea? Is that possible?

Probably also the need of cheap products in the USA comes from the lowlevel of wages for an important part of the workers. They probably cannot afford to pay more, which makes difficult to producelocally, even though the costs of transport from Chima to the US is one element in the price of Chinese product....... it is why the Chinese are promoting the new railroad on the Silk Road. 12 days from Chinato Europe..... instead of 22 to 30 days by sea.

Probably also the need of cheap products in the USA comes from the lowlevel of wages for an important part of the workers. They probably cannot afford to pay more, which makes difficult to producelocally, even though the costs of transport from Chima to the US is one element in the price of Chinese product....... it is why the Chinese are promoting the new railroad on the Silk Road. 12 days from Chinato Europe..... instead of 22 to 30 days by sea.

Reasonable conclusion! Typically you'd expect Krugman and co's stuff to dominate, with interindustry trade between similarly developed countries at the forefront. Not surprising it goes arse about face in countries such as the UK and the US, where neoliberalism has allowed overfocus on low wage employment.